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2016 Transfer Pricing Outlook for Nigeria

At the end of 2015, Nigeria taxpayers have been under Transfer Pricing (TP) rules for three years.  The Nigeria Transfer Pricing Regulations (the Regulations) was introduced towards the end of 2012.  Typically, a nation would have gone full circle in the TP roadmap at the end of the third year of introduction. In Nigeria’s case, the end of the third year of introduction of TP rules coincides with a very “interesting” time in our nation’s fiscal and economic history.

Nigeria, a major crude oil exporting nation depends heavily on oil revenue to fund her budget.  Hence, over the years, Nigeria’s annual budget will typically indicate crude oil sale proceeds as the major source of government’s revenue.  However, when President Muhammadu Buhari presented the 2016 budget to the National Assembly on 22 December 2015, it was obvious that this was indeed a budget of “change”.  Compared to previous years where revenue from oil paid for more than 50% of total expenditure (55% in 2015), only 22% of total expenditure of the proposed NGN6.08 trillion will be sourced from the oil sector.

The President in his speech emphasized the government’s focus on non-oil revenue.  He restated the importance of broadening the country’s tax base and improving efficiency tax collection process.  It is clear that in 2016, government will place more emphasis on shoring up revenue from tax.  It is in this regard that one is of the view that TP will play a major role.

TP basically involves the examination of the arm’s length nature of transactions between related parties in order to protect the tax base of a country and ensure that economic activities undertaken within the borders of that country is appropriately taxed.  TP has become a global phenomenon and a strategic priority for governments over the last decade.  Nigeria may not be an exception in 2016 and beyond.

What to expect in 2016

Multinational enterprises (MNEs) operating in Nigeria should expect an increase in activities in the tax and TP space in 2016. Highlighted below is the TP outlook for Nigeria in 2016:

  1. Increased focus on TP compliance –  The Regulations requires taxpayers to keep contemporaneous TP documentation as well as file annual statutory forms. The TP Division of the Federal Inland Revenue Service (FIRS) has made modest progress in ensuring compliance with the Regulations. It is expected that the FIRS will redouble its efforts in ensuring increased TP compliance among taxpayers. In 2015, the FIRS’ modus operandi was to write taxpayers informing them of their obligation to file TP returns along with the corporate income tax return for the year. In some instances, defaulting taxpayers received reminders from the FIRS. These reminders often have the indication of the intention of the FIRS to assess defaulting taxpayers to late filing penalties. Due to the increased focus on ensuring compliance, the FIRS may be stricter in its enforcement of compliance. The FIRS may assess defaulting taxpayers to late filling penalties in 2016.
  2.  Transfer Pricing Risk Assessments – With the increased drive on compliance, it is expected that the FIRS will place priority on carrying out TP risk assessments. TP risk assessment involves the review of taxpayer’s tax and accounting records as well as related party disclosures to identify high risk taxpayers. A taxpayer will be considered high risk if its TP compliance level is low or when it has recorded accounting losses consistently over a period of time. Also, MNEs with significant transactions with related entities in low tax jurisdiction may trigger the FIRS’ interest for detailed review and potential selection for TP audit. Given the amount of related party disclosures obtained by the FIRS in the last three years as well as the field experience of FIRS’ officials, it is expected that TP risk assessments will receive increased attention by the FIRS’ TP desk officers. From the foregoing, one would expect the FIRS to refine its focus and selection process with a view to identifying suitable “candidates” for TP audits.
  3. Foreign exchange and nexus with cross border transactions –Nigeria has been experiencing severe volatility in foreign exchange as a result of dwindling foreign reserves triggered by the fall in crude oil price. Consequently, the Central Bank of Nigeria (CBN) in a bid to defend the value of the Naira has put in place a number of capital control measures. For instance the CBN excluded forty-one (41) items from the list of items eligible for foreign exchange at the official market. The control measure of the CBN in the last few months have influenced some regulators. Thus, we expect the FIRS to scrutinize cross border related party transactions involving outflow of funds with renewed vigor. MNEs operating in Nigeria often depend on their offshore related companies for certain services that may be key to its day to day operations.  These services includes management and technical services, financial support, technical know-how etc.  In 2016, transfer pricing may become a veritable tool in the hands of government for scrutinizing related party pricing arrangements.  As a result of the prevailing exchange rate regime, MNEs operating in Nigeria may face increased challenges in respect of payment for services received offshore related entities.
  4. Transfer Pricing Audits – As TP audit is one of the last milestone in the TP roadmap, the FIRS commenced the first set of TP audits last year. We expect the FIRS to conclude field exercise bit of the TP audit process and issue TP adjustments. TP adjustment when conclusive will result in additional tax liabilities (including interest and penalties as applicable). Also, it is expected that the FIRS will go full steam in slating more companies for TP audit.
  5. The implementation of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plans – With the conclusion of the BEPS project last October, countries across the globe have commenced the implementation of the BEPS Action Points. For instance, Australia, France, Ireland, Italy, Japan, Mexico, the Netherlands, Poland, South-Africa, Spain and the United Kingdom have introduced Country by Country Reporting (Action 13) to their respective jurisdiction. Belgium, Canada, China, Denmark, Estonia, Finland, Germany, Greece, Luxembourg, New-Zealand, Norway, Russia, South-Korea and the United States have taken steps towards the implementation of Action 13.  Nigeria also took a bold step towards implementation of Action 13 when it signed the Multilateral Competent Authority Agreement (MCAA) for the Exchange of Country-by-Country (CbC) Reports with 30 other countries on 27 January 2016.  It is expected that the Federal Government may propose relevant changes to the Nigerian tax code to give full effect to BEPS implementation.
What should tax payers do?

In order to be well prepared for the trends and challenges of TP in 2016, taxpayers are advised to make tax and TP compliance a priority.  Specifically, taxpayers are encouraged to take the following steps:

  • Review TP documentations – It is imperative that companies review their tax planning arrangements to ensure compliance with Nigeria’s TP regulations. As required by the Regulations, contemporaneous TP documentations demonstrating the arm’s length nature of related party transactions (especially cross border) should be prepared and safely stored for easy retrieval. The annual TP documentation is the usually the first document requested by the FIRS in the event of a TP audit and companies have 21days to submit honor such request.
  •  Deal with BEPS risk assessment- MNEs are advised to carry out a comprehensive BEPS risk assessment to ensure that the implementation of any of the Action Plans will not lead to negative tax impact. It is important to note that a number of the BEPS Action Points may be implemented in Nigeria under the existing tax code. An example of such is the BEPS Action on TP and Value Creation (Action 8-10).
  • Increase capacity of the tax and TP team- To cope with current realities, MNEs operating in Nigeria may have to increase the capacity of their Nigerian tax and TP teams with a view to empowering them to proactively deal with tax matters. Priority should be given to up scaling the tax and TP team on tax management and compliance.


In conclusion, 2016 promises to be a year full of activities from a tax and TP perspective.  Taxpayers are encouraged to make compliance a priority. Taxpayers’ experiences may turn out to be positive or negative depending on their response to the five trends discussed above.

Victor Adegite, Manager and Adedayo Adebowale, Senior Consultant of the Tax, Regulatory and People Services, KPMG Advisory Services, Lagos, Nigeria.

Victor Adegite is a manager with Tax, Regulatory and People Services for KPMG Advisory Services in Nigeria. Email:

Also read “Nigerian Transfer Pricing Regulations: Any Safe Harbour?

David Okwara

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